Top Revenues for Hedge Fund Managers

Despite the fact that investor returns for hedge funds were somewhat “disappointing,” hedge fund managers did not feel the pinch. Indeed, over the last ten years the industry has encountered very bad returns with Daniel S. Loeb referring to it a “catastrophic period.”

Bringing home a staggering $11 billion, the top 25 hedge fund managers around the world. between just two top earners (Renaissance Technologies founder James Simons and Bridgewater Associates founder Ray Dalio) a net of $3 billion was taken home.

How do they do it though exactly? How are they bringing in these kind of bucks? Simons himself recently pointed out that “Good performance, mediocre results or even downright ugly returns. When it comes to hedge funds, it scarcely matters.” So what is it that is making them so successful? Later on in the article, Simons provides the answer. He says:

“The key to these large paydays is the fee system known as 2-and-20. Hedge funds typically charge investors 2 percent of their investment annually, regardless of performance. So even in a disappointing year, managers still are paid a handsome sum. In the event they make a profit, the funds take 20 percent of that as well.”

The list – composed by Institutional Investor’s Alpha magazine – is generated on an evaluation of the percentage of hedge fund manager’s fund and performance fees, with a study of how they personally invested in the fund. When the list was first formulated back in 2000, compensation was half of what it is now.